On Monday, the Senate Appropriations Committee will consider Assembly Bill 10 (Alejo), which would increase California’s minimum hourly wage — currently $8 — in annual increments until it reaches $10 in 2018. Since it reached the California State Senate, AB 10 has been amended to remove a provision tying the minimum wage to inflation, which would have resulted in modest increases in hourly pay to keep pace with the rising costs of living.
Even without this provision, however, an increase in the minimum wage is good policy for California’s economy. Such an increase is long overdue and will provide extra financial security for California’s workers.
A minimum-wage increase would come at a crucial time for California’s low-wage workers, who generally have seen their earnings decline in recent years. Between 2006 and 2012, inflation-adjusted earnings for the bottom fifth of California earners declined by almost 6 percent. Furthermore, inflation has eroded the purchasing power of California’s minimum wage over the past four decades. Despite occasional increases in the minimum wage, the 2013 purchasing power of California’s minimum wage is nearly one-third below its 1968 value.
A minimum-wage increase would help workers of all ages and levels of educational attainment. Contrary to an often-repeated myth, workers earning minimum wage aren’t just teenagers who are entering the workforce for the first time. In 2012, nearly half of those earning up to the federal minimum wage nationally were over the age of 25, while more than 40 percent had at least some college education. And minimum wage increases don’t just raise the pay of minimum-wage workers — there is often a “spillover effect” for other low-wage workers already making slightly more than the minimum. Thus, an increase in the minimum wage would benefit a large segment of the workforce, one that California needs to succeed in order to drive the state’s future economic growth.
Raising the minimum wage is essential to improving the economic security of California workers, and Monday’s committee vote is a crucial step.
The CBP recently launched a series of brief online videos, part of our ongoing effort to make our research and analysis available to a broad audience. The video series aims to highlight key issues and trends related to budget policy as well as their implications for individuals, families, and communities.
In this video, Samar Lichtenstein discusses Census data showing that even as California’s job market has begun to recover from the Great Recession, single mothers as a whole have faced a continued decline in employment and wages.
Recently released data from the Franchise Tax Board (FTB) illustrate that the wealthiest Californians started to recover from the Great Recession in 2010, while middle-income Californians continued to lose ground. The average income of middle-income Californians reached a more-than-two-decade low in 2010, according to the FTB data. That year, the middle fifth of California taxpayers earned $34,621, on average, more than $800 (2 percent) less than in 2009, after adjusting for inflation, and nearly $7,000 (17 percent) less than in 1987 – the first year for which data are publicly available. In fact, the average income of middle-income Californians has declined every year since 2004, after accounting for inflation.
In contrast, the average income of the wealthiest Californians, which lost purchasing power during the Great Recession, has started to bounce back. Between 2009 and 2010, the average inflation-adjusted income of the top 1 percent of taxpayers grew by an astonishing $250,000 (21 percent) – to over $1.4 million. This substantial increase in the aftermath of the recession partly reflects strong growth in investment earnings, which make up a large share of the incomes of the wealthy.
These trends indicate that the gap between the incomes of the wealthy and those of middle-income Californians began to grow again in 2010, after narrowing briefly during the downturn. This is troubling. Some experts suggest that widening income gaps could make it harder for low-income children to move up the income ladder as adults because the rungs of the ladder are farther apart. And as we illustrated in a CBP report on inequality released last fall, mobility up the income ladder is far less common than many people realize. Two out of five US children who grow up in families in the bottom fifth of the income distribution remain in the bottom fifth as adults. In addition, children who grow up in low-income families in the US are less likely to move up the income ladder as adults when compared to children in many other industrialized countries.
The continued decline in the incomes of middle-income families is also a troubling trend – one that could have significant consequences for the pace of California’s economic recovery. Consumer spending is a key driver of the economy. But with their incomes losing purchasing power, many middle-income families cut back their spending in recent years, according to national data from the US Bureau of Labor Statistics. Middle-income families tend to spend a large share of their incomes. This means that as their earnings increase, so does their spending, which helps to spur job creation and fuel economic growth. With declining incomes for middle-income families, our economy is likely to grow more slowly.
Given the continued struggles of middle-income Californians in the wake of the most severe economic downturn since the Great Depression, policymakers should avoid more devastating budget cuts to programs that help families make ends meet. As policymakers work to close the state’s budget gap before the constitutional deadline at the end of this week, we urge them to take a balanced approach that preserves the public services and structures that provide the foundation for a strong economy.
Quick: What does the US have in common with Cameroon?
The answer: almost the same level of income inequality. According to the CIA World Fact Book, the US has the 39th widest gap between rich and poor in the world, ranking right alongside Uganda, Jamaica, Cameroon, and Cote d’Ivoire.
To learn more about widening inequality in the US and California, as well as how the Great Recession has affected California’s workers and their families, don’t miss the CBP’s briefing, On the Edge: California’s Workers Still Face the Toughest Job Market in Decades, on Thursday, October 20 at 11 a.m. in State Capitol Room 2040. The briefing will highlight the CBP’s latest research on employment, wages, and incomes and present new data that will be included in a forthcoming “chartbook” documenting widening inequality over the past generation.
Register for the briefing online, or call the CBP at (916) 444-0500.